While purchasing a new home can be exciting, some people may struggle with the mortgage process. Obtaining a mortgage loan can be a complicated and intimidating process, especially if you are a novice. It can, however, go more smoothly if you know what steps to take.
As a result, this post will go over the steps in the mortgage process and what to expect.
What Are The 9 Steps in getting a Mortgage?
1. Budgeting Preparations: What can you afford?
This is a required first step in obtaining a mortgage loan. You should know how much house you can afford.
Calculating the maximum monthly mortgage payment you can make on a mortgage would be more beneficial than calculating the maximum home purchase price.
Then, using current mortgage interest rates, you can determine how much house you can afford from a serious buyer.
2. Get a Pre-Loan Approval Certification/Mortgage Pre-approval
Most sellers and agents will only consider an offer from a potential buyer who has already been pre-approved for a loan on the property they are selling.
Sellers prefer a pre-approval letter over a pre-qualification letter as proof of a buyer’s financial stability and ability to purchase the home.
Understanding the difference between being “pre-qualified” and “pre-approved” for a mortgage is critical.
Both of these phrases indicate that you are likely to be approved for a loan of a certain amount. Although pre-qualification letters are acceptable to some mortgage lenders, real estate agents prefer pre-approval letters.
This is because pre-qualification letters are never checked for accuracy. They are only estimates based on your responses to several questions. On the other hand, a pre-approval letter is obtained after your financial documents have been verified, such as your credit report (including credit history and credit score), bank records, debt-to-income ratio, and so on.
3. Find a Home and Make a Legit Offer
After getting pre-approved, you’ll realize that house hunting is a lot of fun.
Your broker understands how to structure the offer and can incorporate pre-deal conditions.
Take note that most offers include earnest money deposits.
Earnest money is required to secure your house offer. It ranges from 1% to 3% of the property’s cost. It may reach 10% for homes in high demand with many potential buyers.
Inquire with your real estate agent about the earnest money deposit amount, and be prepared to write a check or wire transfer if your offer is accepted.
4. Select a Mortgage Lender/Loan Originator.
Now that you’ve found a home and had your offer accepted, it’s time to make a final decision on your lender.
You can use the same lender you used for pre-approval or choose a different one. However, it is recommended that you compare at least three different lenders before making a decision.
When looking for a mortgage, remember that your rate is determined by more than just your application. It is also influenced by the type of loan you receive.
So, compare the rates and closing costs of a few different lenders to see what types of loans you qualify for.
5. Finish a Thorough Mortgage Application
The next step is to complete a full mortgage loan application after choosing a lender.
The majority of this application process was completed during the pre-approval stage. However, a few more documents are now required to pass underwriting.
For example, your lender will require a completed copy of the purchase agreement and proof of your earnest money deposit.
Furthermore, your lender may request current documentation of your income, obligations, and assets, such as pay stubs and bank statements. If you are self-employed, this approach will be more difficult. You may be required to provide tax returns.
6. Get a Home Inspection.
Throughout the financing process, have a home inspection performed. Some buyers forego home inspections in competitive markets.
A thorough house inspection reveals hidden facts about the property.
Home inspectors examine structures such as the architecture, foundation, electrical supplies, and so on.
Home inspections assist buyers in identifying costly repairs. If the house needs extensive repairs, look elsewhere.
Even if you intend to buy, the inspection results may be used in sales negotiations between buyers, sellers, and their representatives.
7. Appraise the Home.
The lender will also hire an appraiser to determine the value of the home.
Although an appraisal fee may be involved, most lenders use an outside company.
The appraisal confirms that the house is fairly priced.
For the loan to be approved, the home must appraise for the contract price or higher. If the appraisal value is below the contract price, your loan may have to be restructured.
8. Processing and Mortgage Underwriting
After you submit your entire loan application, mortgage processing begins. Buyers typically need to wait for the necessary underwriting process.
Here’s what occurs behind the scenes:
- The Loan Processor prepares your paperwork for underwriting.
- Order your title search, tax transcripts, income and asset documentation, and credit reports.
- Bank deposits and payment history are confirmed on the application.
- Late payments, collections, and judgments need a written explanation.
- After verifying and documenting, the processor sends the file to the underwriter.
- The underwriter will thoroughly review your information. They will also “nitpick” your data for inconsistencies and red flags.
9. Closing the Deal
After your loan is approved, you must sign the final loan documentation. The signing is done in front of a notary public. Your loan will close soon after you sign the loan documentation. Before your loan can close, federal law requires you to study the documentation on owner-occupied refinancing loan transactions for three days.
Need the expert service of a reputable loan broker in Hawaii? Smart Money is your best bet.
Smart Money is a mortgage broker in Hawaii that serves a variety of clients. We specialize in conventional, hard money, VA, FHA, USDA, and portfolio home loans. We can assist you, whether you are an investor or a first-time home buyer. You will have the best options thanks to our access to numerous lenders and guidelines. Contact us today, call (808) 447-1850.